Finance Terms & Jargon: A Beginner's Interview Glossary
After understanding money vs capital markets, the next interview step is decoding the vocabulary used inside valuation, banking, investing, and risk discussions. A finance professional must instantly recognize and explain core terminology because these terms are frequently tested across IB, ER, AM, and corporate finance interviews. This beginner-friendly glossary gives you the formula, context, and Indian example for each term.
- EBITDA means Earnings Before Interest, Tax, Depreciation & Amortization, calculated as EBIT + D&A; proxy for operating cash flow.
- EPS means Earnings Per Share, calculated as Net Profit / No. of Shares Outstanding, and P/E Ratio is Market Price / EPS.
- P/B Ratio is Market Price / Book Value per Share, while EV/EBITDA uses EV = Market Cap + Net Debt and is key for M&A.
- ROE, ROA, and ROCE measure returns using Net Profit / Shareholders' Equity, Net Profit / Total Assets, and EBIT / (Total Assets - Current Liabilities).
- WACC means Weighted Average Cost of Capital, calculated as Ke×(E/V) + Kd×(1-T)×(D/V).
- Banking terms like NPA, CASA, and NIM help decode asset quality, low-cost deposits, and lending profitability.
- EBITDA vs PAT depends on context: EBITDA strips out capital structure and tax, while PAT is what flows to shareholders.
Big Picture: Core Terms Across Finance Interviews
A finance professional must instantly recognize and explain core terminology. The following reference table covers the most frequently tested terms across IB, ER, AM, and corporate finance interviews.
Glossary of Finance Jargon and Key Terms
Reference data: NSE India, SEBI, RBI Annual Reports, AMFI Data (FY2024).
Valuation and Profitability Terms
EBITDA is Earnings Before Interest, Tax, Depreciation & Amortization. It is calculated as EBIT + D&A and used as a proxy for operating cash flow, with Reliance Retail EBITDA FY24 at ~₹22,000 Cr.
EPS is Earnings Per Share, calculated as Net Profit / No. of Shares Outstanding. TCS EPS FY24 was ~₹120 per share, and the P/E Ratio uses Market Price / EPS as a valuation multiple.
P/B Ratio is Price-to-Book Ratio, calculated as Market Price / Book Value per Share. HDFC Bank P/B is ~3.5x, and banks are valued on P/B.
Capital, Returns, and Risk Terms
ROE is Return on Equity, calculated as Net Profit / Shareholders' Equity × 100. HDFC Bank ROE is ~17%, with target >15% for quality.
ROA is Return on Assets, calculated as Net Profit / Total Assets × 100. Banks target ROA >1%, and HDFC Bank is ~2%.
ROCE is Return on Capital Employed, calculated as EBIT / (Total Assets - Current Liabilities). Asian Paints ROCE is ~30%+ as an asset-light leader.
Beta (β) is a Systematic Risk Measure, calculated as Cov(stock, market) / Var(market). IT sector β~0.7 is defensive, while PSU banks β~1.2.
Alpha (α) is Excess Return over Benchmark, calculated as Actual Return - CAPM Expected Return. Active fund α>0 means fund manager added value.
Banking, Mutual Fund, and Fixed Income Terms
NAV is Net Asset Value for Mutual Funds, calculated as (Total Assets - Liabilities) / Units. HDFC Equity Fund NAV is recalculated daily by AMC.
AUM is Assets Under Management, meaning total market value of assets managed. Indian MF industry AUM is ₹65+ Lakh Cr in 2024.
NPA is Non-Performing Asset, a loan overdue >90 days and a stressed asset. SBI GNPA is ~2.24% in FY24, with improving trend.
CASA means Current Account + Savings Account. It represents low-cost deposits and is key for bank profitability, with HDFC Bank CASA ratio at ~38% and Kotak at ~50%.
NIM is Net Interest Margin, calculated as (Interest Income - Interest Expense) / Avg Earning Assets. Private banks NIM is 3.5-4.5%, while PSBs are 2.5-3%.
Yield means Annual income / Price for bonds or dividend, with Coupon / Price for bonds and D/P for equity. The 10Y G-Sec yield is ~7%, and AT1 bond yield is 8-9%.
Interview Insight: EBITDA vs PAT
When asked "which is better - high EBITDA or high PAT?" the answer depends on context. EBITDA strips out capital structure and tax, so it's used for cross-company comparison. PAT is what flows to shareholders. IB analysts primarily use EBITDA for M&A valuation; equity research focuses on PAT/EPS for target price. A company can have high EBITDA but negative PAT if heavily leveraged (high interest) or in high-depreciation sectors.
Conclusion
Finance terms and jargon are not just definitions to memorize; they are the language used to compare companies, assess banks, value businesses, read mutual fund data, and discuss risk. The strongest interview answers explain the term, give the formula or context, and connect it to a relevant Indian example.
The most frequent error is treating high EBITDA as always better than high PAT, or high PAT as always better than high EBITDA. The answer depends on context: EBITDA strips out capital structure and tax, while PAT is what flows to shareholders, so a company can have high EBITDA but negative PAT if heavily leveraged or in high-depreciation sectors.